That $135 million might be burning a hole in your pocket, but you’ll have to spend it somewhere else.

Bill Gates, the world’s richest man and Microsoft’s chairman, was asked at the company’s annual Strategic Account Summit if he had used real estate Web site Zillow.com to estimate the value of his 66,000-square foot property along the coast of Lake Washington. Gates said he was a fan of the site, which values the Gates home in the upscale Seattle suburb of Medina at $135 million and change.

“Their algorithms for figuring out prices don’t scale very well into the very low end or the very high end, I should tell you that,” said Gates. “If you bid that number on my house, I won’t sell it to you.”

Gates’ lodge-style home has a reported seven bedrooms, six kitchens, 24 bathrooms, a domed library, a reception hall and an artificial estuary stocked with salmon and trout.

(Side note: I went to the Gates home to cover a dinner for China President Hu Jintao and I saw a putting green and two boat docks. I can’t confirm the estuary.)

Microsoft’s Chief Software Architect Ray Ozzie has the biggest shoes to fill at the company. Last June, he took over the position for Bill Gates, the company’s iconic chairman and co-founder. He’s the first to admit that he must step out of Gates’ shadow. “I am not Bill Gates, but I am who I am,” he said during a a question-and-answer session at Microsoft’s MIX 07 Conference on Monday.
The man who created Lotus Notes now stands at the center of Microsoft’s “software plus services” push to incorporate services across its entire business line-up. He sat down for an interview with Reuters. Here’s our story and some excerpts from the interview.

Q: Will you be offering more database infrastructure services?
A: I don’t have concrete things to announce, but we do buy huge amounts of storage, a very large number of racked standard PCs in big data centers and we buy extremely high volumes of bandwidth and content distribution architecture. At a principal level, we are going to be working on and releasing more things that transfer our economics to developers, particularly smaller developers who can’t negotiate those big things.

Q: Why did you announce Silverlight Streaming before something like Windows Live Storage or a more consumer-oriented storage service?
A: Well it’s a developer, designer show. The other ones that we are working on in a variety of classes, there are technical reasons why we are staging things in various ways and there are also market reasons. Amazon.com, I have to give them a lot of credit for being out in front, is trying a certain business model and seeing if it works. We all owe them a little debt of gratitude. They also did a very nice job at letting us see what parts of what they’re doing is catching on.

Q: Are the data center investments going to continue?
A: We believe that it’s going to be a growing thing, but that it can grow in a way that’s tracking the usage and profitability of it meaning it’s not something we have to ridiculously overbuild in advance. We’ve got reasonable visibility into the next quarter or next year, but yes, it will be on the increase.

Q: You mentioned that you can’t necessarily simply move an application to the Web. What parts of Office make sense online?
A: Sometimes we as an industry build things because we can. Those are great to learn from, it’s not necessarily always woven together in a way that’s best for the customer. We are all learning from Google Docs and Spreadsheets, from Zoho, from EditGrid. There are lots of them. There are pros and cons from each. I just think being a company with a big business in productivity that the prudent thing for us to do and the right thing for us to do is to look at these scenarios and look at where things resonate and where they don’t and come out with the right offering.

Q: Does Microsoft’s desktop-based productivity business hinder the company’s Web services push?
A: I look at it the opposite way. Having worked at a start-up also, I know how hard it is to get mind share and to get people up to speed on something. We have a very unique opportunity, which is to help the customer base out there, a huge set of people, who understand what Office is all about and to bring richer scenarios to them. From my stand point, it’s a plus, it’s an additive thing. There are a lot of people right now who have never tried Office in emerging markets. Is there a chance of cannibalization versus growth? I have absolutely no way of knowing but in every situation I have been through in this industry so far what sometimes looks like cannibalization ends up netting out to be a growth opportunity. I can be very, very direct in saying we don’t have our head in the sand about the capabilities of the Web or any given technology.

On the eve of Microsoft’s launch of its Zune digital entertainment player, chief executive officer Steve Ballmer spends some time with Reuters to discuss how he plans to gird for battle against Apple Computer’s iPod player. He talks about everything from why Microsoft sees a competitive edge with the Zune’s wireless music sharing capabilities and its landmark decision to pay a fee to Universal Music to what’s on his own Zune.

A link to Reuters coverage can be found here. The following is an edited transcript:

Reuters: How would you measure success for Zune?
Ballmer: The early going will probably be the easiest. This year, we’re launching the product. We want the product to get great reviews and I want consumers to pretty much buy what we can make here in the U.S. and I want them to like what they bought. If all that happens, we’d have to say that was a great Christmas and then we go from there.

Reuters: You’re already supporting portable music player market with the “PlaysForSure” program, why does Microsoft need its own hardware product?
Ballmer: PlaysForSure gave us a spot in what I might call disconnected entertainment, but it’s really hard to pull that together around the central service unless we take a little bit more of an end-to-end process. While we continue to support our PlaysForSure partners, we wanted to make sure we can introduce this notion of community, which is tough to do with quite the same model which is called the OEM model in PlaysForSure. Of course, between us and our PlaysForSure partners, we certainly have upside opportunities in terms of market share in portable devices. We think this innovation, this approach, probably mandated a little bit different cut at it and, in fact, it gives us a chance with our PlaysForSure partners to expand our share of the market.

Reuters: Will Zune be the future platform for everything mobile?
Ballmer: I think a Zune is a highly entertainment-oriented experience and over time we’ll want our entertainment experience to include movies, music, etc. We’ll start out with music. We’re going to want to add more entertainment types to the Zune experience. We’re going to want to add more capabilities based on wireless. Over time, as you suspect, we’re going to want people to participate in the Zune community from devices besides the PC and the portable music device. When we have something to say about that, we will.

Reuters: Given that you are entering a market with such an entrenched competitor, what is the total vision for Zune?
Ballmer: We and Apple both have a zero installed base today of connected entertainment devices. We start out with zero. The world of the future is not a world of entertainment without community. The world of the future is a world of entertainment and entertainment with community, with my friend. It’s a social experience. You could say, ‘yeah we’re starting out umpty-ump millions players behind’ or you could say ‘hey look, there is a whole new paradigm that is going to happen in this business and we’re jumping in at the beginning. Who knows when Apple will jump in? It’s a good company. I’m sure it won’t take (Apple) forever. New applications, new scenarios. We saw that in video game consoles. For all of the innovations in game, the place where I say we left Sony in the dust, frankly, is in the social nature of the experience because of Xbox Live. We get first-mover advantage, in a sense, with Zune.

Reuters: Apple makes its profit off the iPod hardware. Will it be the same case for the Zune?
Ballmer: In a sense, we have certainly embraced in the case of the Zune, the business model of the market leader. We tried with a different business model. We got some success with PlaysForSure, which is more of an OEM-oriented business model. In this case, we have a model like Apple’s. You ought to expect then the economics to come from not that dissimilar of a place.

Reuters: Why did Microsoft feel the need to do a revenue-sharing deal with Universal when Apple doesn’t do that?
Ballmer: We need strong support from the content industry. We know the content industry. The music industry, specifically, is in a transition point and we wanted the music industry to support us enthusiastically as opposed to begrudgingly. We think we’re in very good shape with that. For Apple’s issues with that industry, you have to talk to Apple.

Reuters: What advantage does that give you?
Ballmer: I think you want the guys who make music to be enthusiastic about encouraging their consumers to this experience and this social platform. And certainly, having an economic tie is not a bad thing.

Reuters: Some early reviews have not been stellar. One common theme is that it is derivative of the iPod and Microsoft usually does not get it right the first time with a new product. Does that kind of reputation bother you?
Ballmer: At the end of the day, it’s about what consumers want. I think if anybody else had come out with Zune, a small little start-up, people would say ‘wow, isn’t this wonderful, isn’t this innovative, isn’t this creative. They’ve taken this basic concept and built in wireless. Look at what that can bring you. Isn’t that super, etc.’ We have to remember at the end of the day it’s about — and in this case, it’s not even about companies — the product. So far, the reviews on the product have been by in large pretty good. Not perfect, but by in large pretty good.”

Reuters: What do you listen to on your Zune?
Ballmer: What do I listen to? I’m an old guy, I listen to old guy music which in my case is stuff like the Supremes and other late sixties and seventies music. A little Motown, I’m a Detroit native.

Reuters caught up with Microsoft’s J Allard at the first public demo of the company’s answer to Apple Computer’s iPod. Equipped with wireless networking capabilities, Allard envisions turning once passive consumers into defacto street teams for music labels.

Reuters coverage here.

On unseating Apple and the iPod:

•  ”There are billions of people on planet earth who listen to music and they’ve sold 50 million gadgets so we’re in this early phase of digital music and portable entertainment. In some ways, the iPod is truly signature and breakthrough. and it’s a great product. I don’t want to knock them at all. But in some ways, it’s the Pong or Model T of digital music.”

Turning pirates into promoters:

• “We believe in connection. We’re launching a product. It’s a simple idea, but we’re putting Wi-Fi in everything we do.”
• “It legitimizes peer-to-peer. If you and I are sitting in a coffee shop and I’ve got a playlist that I’ve put together that I think you would really like, I can share it with you. You can listen to it for three plays or three days.”
• “If we have Wi-Fi in every device, our customers become the street team or promoters of the music labels. We turn the adversarial relationship where the labels see them as pirates in some ways but we turn them into promoters.”

Music not dead:

• “In some ways, the implicit statement (from Apple’s iPod announcements this week) was music is done and our view is that music is just getting started and let’s go do new stuff with music. In some ways, we’re the indie band, the new band, at Microsoft and we’re going to go partner with a bunch of indie bands.”
• “We’re partnering with people in the music industry that’s thinking about where music is going not where music has been.”

Zune to learn from Xbox:

• “The biggest (lesson) is that it’s not about the hardware.”
• “It’s not just about the device. It’s the device, hardware, software, service and of course the community that surrounds it. We believe in connected. We believe in connected entertainment and that’s the soul of this thing.”

Microsoft Corp. will release an HD DVD player for its Xbox 360 video game machine in time for the 2006 holiday season and will have 10 million of its next-generation consoles to market before its rivals debut their new systems, company executives said on Tuesday.

The line of celebrity appearances this week at the Consumer Electronics Show, where media companies were once sidelined, tracked deals by Time Warner’s AOL, General Electric’s NBC Universal, Viacom’s MTV, note Reuters reporters Kenneth Li and Daisuke Wakabayashi.

Media companies, have “always been observers in Las Vegas,” said Leo Hindery, managing partner of InterMedia Partners, a private equity firm specializing in media, and former CEO of cable operator AT&T Broadband, referring to programmers’ outside status at the gadget show. This year, media’s “credentials are just as important as Google’s and the guys who make the devices,” Hindery added.